in the lower crystal springs improvements are due next week. we should have an even better indication if the trends are lower than expected. you may as of $33 million, but you tell me that the overall forecast only was down by 4 million. why is that? approximately half of these savings was already accounted in the forecast last quarter. i also allow the contingency budget for one of the projects, the crystal springs pipeline, it took care of some of these costs. finally, some of the project had forecasts that were lower this quarter. some were higher. the one project that has shown

be increased and i will talk about that later, the san francisco pipeline. the cost went up $11.5 million this quarter. here are some of the major accomplishments. some of those were recorded after the reporting quarter, but we advertise its construction projects totaling almost $500 million. during october, we also certified three project eir's. the ncp for the new tunnel, the contractor mobilized thta se -- that same week. it is completely done and we have only some work at the

surface to complete the project. it will be done for months ahead of schedule. and finally, i wanted to mention on october 5, we received an award from the construction management association for our construction management program. it is pretty notable in the construction management industry. here are some of the pre- construction challenges that we are working to resolve right now. we are trying to enhance the reliability of the project by doing additional planning work to confirm the operational criteria and design flow for that project. there is also an additional ground water monitoring that will be taking place to better assess the level of treatment

that will be required for the water that we will be extracting. the variances for this project have stayed the same since the last quarter. for the bay division pipeline, they show forecasted costs at $6.2 million over the budget. there was an increase from the last quarter. about 2/3 of that forecast was related to the additional improvements that was required as one new trace of the fault that we previously thought we did not need any improvement on. the remaining costs are associated with the needed to relocate pipelines from the water district. on the san antonio back of the pipeline, there was an additional cost variance of $11.5 million. the project forecast now extends

to $2.5 million over in the seven months of delay. i am not sure if you recall, but this is a project that changes significantly. the water discharges were going to be rallied to the base in a very sensitive area of san antonio creek. it didn't take long to realize that that would not be feasible. as part of the design, we discovered a number of operational complexities that would be dealt with that and that of requiring new projects and a very significant project components such as a curtain wall around the quarry.

i was uncomfortable with that high of an increase, so i presented our options and our proposal to the management team. they concurred with our approach in directed us to proceed with the work, which we will. this is an example where i would be more than willing to give you a special presentation on this if you want. on the construction side, there is a challenge that we faced where we spent a lot of our resources that did not appear in the quality report. it had to do with safety requirements when we perform system shutdowns. one of our contractors consulted with them for a system shut down and they received directions that they needed to perform these shutdowns that meant we would have to close two valves on either side of the

shutdown. it would have incredible impact on the systam a -- system and the program. i am pleased to report that in a meeting with the head last week, we were able to successfully argue that our current procedures to meet all safety requirements except for some minor little editions that we will need to take care of. but in general, we'll keep our existing practices. it was a close call for us. we encountered one of our most significant challenges in the field when the machine broke out while we were tunneling under the quake. the machine was retracted, refurbished, reasserted that a new rescue shaft. we resume tunneling in completed

operations in just over one month. this was an incredible feat to be able to react very quickly to a very big challenge that we encountered. of contracts for the bay division pipeline have encountered some pretty extraordinary circumstances that were not anticipated. we have a couple of agenda items before you where we are asking you to approve an increase in the project contingency for this project to address some of the change orders that will be addressed. i will go over some of them very briefly. we ran into a number of archaeological sites, and on one of those sites where you have the native american burial site, we will have to tunnel under that site. we are taking precautionary steps that include trenching ahead of construction to be sure

that we give ourselves enough time to react if we were to encounter any other archaeological sites. also along the peninsula alignment, we have encountered a large concentration of nickel. it results in higher than anticipated disposal costs. on the east bay side, the contractors machine that ran into an obstruction under the pacific railroad tracks. that is an obstruction, we reacted quickly, took a number of steps to mitigate the situation. we are currently being an extraction as we speak. we have already completed the design of the new alignment. we have confirmed that there will not be any obstruction with

the new alignment. we should have the machine extracted by mid december. on the east bay side, we have also encountered contaminated groundwater. we are mitigating that situation by using different construction methods and using different elevations for the pipe alignment. we are busy out there. i've always like to report on the dam. after months of negotiations, we have finally reached a general agreement on the fishery aspects. these negotiations were pretty intensive and they have resulted in a slippage of one month in the ceqa

certification. a slip from september to january of 2011. we now have the consulting team on board, and we have been busy on the number of construction works like a review of the entire construction schedule. they are also working on preparing for a number of pre constructions. the fun part, sharing some of the pictures showing the progress in the field. the treatment facility is about 86% complete. what you see is the 10,000 square foot prject. -- project. completion is scheduled for march in just four months. the project shows progress of 13%, but you can tell if you visit the site, the amount of

work that is being done out there is pretty incredible. what you see is the massive excavation emigrating -- and grating. the excavation work is well udner wa - -und- under way, 98% done as of a couple weeks ago. these are buriaerial photos. and the white part at the bottom [unintelligible] this is a flood of that i could not resist adding at the last minute that shows the machine breaking through the receiving pip on the other side of alameda

creek. you asked us to present a case study were we could show the system and procedures that are used to resolve issues such as this one. this might be a good candidate, so maybe we can put a presentation together. the tunnel groundbreaking ahead was a major achievement for us. you might have read about it because we got front page coverage from the chronicle, and the story was picked up by 60 different media outlets throughout the country. the event was very well attended, and the folks shown here are david woods, mayor of the city of east palo alto. the councilmember for the park and the general manager.

i attended the first quarterly meeting last weekend i was very impressed by the cooperation between the contractors and the cmts. this is a project we haven't talked much about. work there is proceeding as planned. we actually shut down the key components of the system ought -- on october 1. my last slides show a comparison of the planned milestone, and this is shown in blue. the other columns show up coming ones. i wanted to say that for a local project, we achieved a three of

the sixth plan milestones. -- achieved three of teh six pxc planned milestones. the harding park recycled water, there are some issues to resolve their for contract qualification. it is expected by mid november. on contract final completion, we missed the completion of the pump station upgrades. where we need to get some changes associated with the emergency generator, it is fully operational and being used as we speak. we did better on the regional outside achieving five milestones.

the big milestone was the one for the lower crystal springs dam project. we will receive bids on the project next week. the issue of the construction ntp's that we needed to. we missed two completion dates for smaller projects. two projects, in both cases, were essentially complete, and final completion is anticipated for the end of november. that is all i have to say. president vietor: thank you very much. any comments or questions? >> this is the second quarter we have been using this format, and

i am very pleased with it. it gives a lot of information that highlights areas that you should focus on pretty effectively. i know that has been one of the sources of discussion over time is how transparent that process is. people that have concerns with the the progress of the capital program have a lot of information, that is the job of the reporting period as far as timeliness, i think we had a little bit of discussion on that. 30 days is fine. this kind of quarterly reporting is to provide the transparency and oversight, not management. as a reporting structure, i think it is pretty good.

it gives us and the public information they need to know about what is going on. from my perspective, i think this is working pretty well. >> what i have tried to do, on some of these slides, i don't only give you what is reported, i give you the latest and greatest as i know it as of last night. >> i appreciate that. one thing that i did have a question about, i think it was the last meeting where how they raised the issue about the ballooning of project toward the end of the project schedule and how we would be dealing with that. that is an issue of concern. part of that concern is what happens with the crystal springs project. we will have the ability to really assess the opportunities and impact. we talked about coming back to

the commission with some kind of discussion on what that meant to us as an organization and management challenges. what is your plan for addressing those issues to the commission? >> a couple of things. as you know, i sent you a letter in your package outlining the work of an independent review panel that is coming next week to assess our construction management capabilities. i have asked our control team to put our entire forecasted spending plan, i wanted the assessment team to look at it. while we are evaluating our capabilities, we can compare

that to what the challenge is. i want an independent assessment there. i want to conduct our own internal assessment and i want to ask our program manager to assist with that. i am thinking that i will be able to complete that in early december, and i owe a response. i want to formally respond to their letter and the request of the commission. i envision that i could probably come before you with a report and a presentation either at the one meeting in december for the first meeting in january. president vietor: thank you very much. >> a lot going on. the second item is the quarterly budget report.

>> i am the assistant general manager and cfo. i have some brief slide to walk you through. we also looked at october actuals as well as all of the recent information including water delivery to include those of to the very last minute of publishing. in particular, we have done a heck of a drop of water conservation. -- job of water conservation.

total usage was 224 mgd, roug hly 15% under the 265. in the most recent year, our water usage system was down nearly 8%, so additional conservation and additional lower usage because of cooler weather and also the economy has some part to do with that. what we discussed here today are the key variants. the water enterprise, water use is lower than assumed in the budget. our retail usage through october went out another 0.4%. -- went down another 0.4%. " severally continue to conserve

and losuse lower water. that is on top of the lower 8.5%-9% that was already lower. significant lower usages of water. we play catch up very quickly with our wholesale rates. retail rates because of prior fund balances, we were able to implore lower retail sales and we continue on the retail side to be able to do that. those retail rates are set through june 2014. we plan to collect those administer those as adopted for the retail side. waste water overall is under

budget. hollow or water demand of water waste, the savings are also there. partly because of high salaries, -- because of salaries taking a 4.6% pay cut. we have planne dhiring -- planned hiring and review every new hire in light of the additional lower water usage. the power enterprise, slightly lower usage. and on the expenditure side, we have benefited from lower power purchases. that is because we have had such significant rainfall.

october was the highest record water that we have experienced since we have kept records. an incredibly wet october for the system. >> those familiar with the geography, the rain washed out the bridge. >> we have a very special situation where the reservoirs are near full. and they are doing a very good job of using less water. what that means, the checking account balance, so to speak, we summarize all of the activities of the enterprise, and how we think the checking account balance will end on june 30?

let me walk you through the role for water. it ended last year with reserves. we are just finishing the audit. the next columns to the right show that we plan to end of the current 30, 2011 -- how we plan to end with our reserves. and we plan to have them level year to year, $40 million at the start of the year and projected to end at $40 -- at $41 million of the budget when you adopt a balanced budget. as you have reviewed in the first quarter budget report, our revenues, in particular because of lower water sales, or $30 million lower than budget. what that means is that we are significantly lower, even though the expenditure side of the house shows expenditures savings, or a relatively flat

budget. because revenues are that much lower, we are needing to tap into the reserves. at this point, we are still projected to end the year in the water enterprise with about $11 billion in available reserves. that is still respectable, but it is not as high as it was previously. we continue to meet our debt service coverage requirements according to our bond governance. however, we do not have as much room in the event we have any more or any lower water sales. so we continue to monitor this weekly. i know some of you look at the intranet and monitor our water deliveries as well. we view it and update accordingly. water, the results are much more pronounced. that is because our wholesale customers are doing a very good job of conserving. they get two-thirds of the

water. that is why there is a very different story between the water enterprise and when you go to the waste water enterprise. in the case of the waste water enterprise, we started the year with $18.60 million of reserves. we specifically adopted a budget with a general reserve in it to not spend it in that year, so it would actually increase reserves for future debt service purposes. we are largely on track because of slightly lower retail water usage that results in slightly lower waste water treatment on the sewer operation. it is slightly down from the $39.50 million we planned, at $36.10. in had ceci -- in hetch hetchy, we wanted to fund capital

projects. we planned to end the current fiscal year with $70 million of reserves. because of some power purchasing, we are projected to end the year with about $73 million. so what are we doing to monitor in particular the water enterprise, as well as the others? we issued budget instructions to all the departments, telling them to anticipate a flat budget, to continue to assume -- and we have rolled through the 4.6% pay cut which city employees have given back to help balance the city budget. that also benefits the waste water department, the water department, and hetch hetchy water and power. we are looking at hiring plans with all the enterprises, making sure we only fill critical positions. we have about 80 to 90 open positions right now that we are

monitoring. wheatley, we are looking at water deliveries for all retail and wholesale customers. also, we continue to monitor all of our spending and income needs for all projects. in the event we continue to see lower water, we can look at unencumbered project funds in the event we would need to pause or defer that spending to bridge any gaps. so we have tools that we can insure to keep a balanced budget, and to make sure we have sufficient fees to and in a very respectable place. overall, we continue to adhere to the key reserve ratio in the fund balance reserve policy, albeit not as high as we would like on the revenue, and the expenditure on the water enterprise -- we do need the debt service on that. with that, i am happy to answer any questions. >> i have a